Friday, January 29, 2010

When the market decides to sell the news, or just plain sell off, there is little that can stop it. We've had three pretty significant things within the last 24 that would have allowed the market to turnaround.

1) Bernanke re-appointed. -Takes uncertainty out of the market, rates will stay artificially low, and someone on board with more stimulus.

2) Strong earnings from Amazon. -The market loved this in the past couple of quarters. They are performing well, although I couldn't buy the stock at that valuation.

3) GDP number comes in at 5.7%.- Fastest gains in six years, although we were coming off some pretty low numbers in previous quarters and that pace will be pretty hard to sustain. But, the market would have applauded this a few weeks ago.

FYI, another interesting name I found in the Pharmaceutical Industry is Forest Labs (FRX). The valuation alone makes it worth a look, and I'll write more about it if I decide to make a purchase.

Thursday, January 28, 2010

Etrade reported after the bell yesterday, and results were pretty much in-line with expectations, with a solid revenue number. Even in a difficult year for investors, they performed well as trading volumes were up and net new accounts and assets were up for the year.

I purchased shares yesterday in anticipation of a good result, but am holding the shares for longer than just a trade. As I said yesterday, I believe they will pull off a merger, but even if that does not happen, we should be okay. As a stand alone entity, Etrade's operations are improving, and they are cleaning up their mortgage portfolio as well.

Motorola also reported this morning. Things weren't so solid there. I was keeping an eye on them due to the success they've had with resurgent sales of smart phones now that they added Google's Android platform. That transition will likely take some time, and but they are definitely behind the likes of Apple, RIM, and Nokia. Activist Carl Icahn has a large stake in Motorola, and he's in for the long haul. He usually manages to unlock some value for shareholders, so this may be worth a look as shares plunged this morning.

The market is continuing to sell-off, and many stocks are starting to look attractive again. Most investors I follow aren't doing much buying yet. We're still likely to see that rally in the dollar, which has carried a negative correlation to stocks for quite some time.

Wednesday, January 27, 2010

I went ahead an started a position in Etrade (ETFC), at 1.58. They do report after the bell, and I don't normally like to buy before earnings, but I just feel its a pretty good price. It has sold off a bit as it seemed to hang in the 1.70's forever. I think it is mostly due to overall market weakness. I've read a lot of research and analysis on Etrade, and the case at these prices is pretty justified, in my opinion. They have one of the strongest discount brokerages out there, and a merger of some sort seems likely. Their loan portfolio, which is been its biggest problem, has stabilized.

I basically wanted to have some kind of a position in case they report a strong number and the stock takes off. I still think a merger is where the price increase will come from, but they are improving and should be fine on a stand alone basis in the event a merger doesn't happen.

Friday, January 22, 2010

Finally starting to feel a little better about being cautious over the past few weeks. The market has obviously changed its mood and is selling all the news out there. Whether its low revenue numbers on earnings results, or Obama and the government announcing a new strategy with Wall St., or China, the market doesn't care right now. We've now fallen a bit more than all those mini-dips that were swiftly bought all fall. Now this one could end up just the same and we could see heavy buying next week. But we just have to wait and see.

Everybody wants a quick fix these days, and thats just not how it works. They expect the president to have a reaction to anything that goes wrong. I get the feel that him going after the banks was a political response to the Dems. losing that seat, and its unfortunate. Employment is whats really hurting him politically right now, and I wouldn't be surprised to see a few more big items tried to stimulate growth. Not what I like to see, but like I said, everyone wants a quick fix. If the market falls much further, they'll probably bring back the uptick rule debate and why we should outlaw short selling or leveraged ETFs.

Meanwhile, we just look for good businesses at good prices. I like the quote that goes something like this (Buffett may have said it) "we just wait for the money to be lying over in the corner, and we walk over and pick it up." Probably messed it up, but you get the idea.

Carefusion (CFN) has held up really well during the past few days. I imagine this was largely due to the fact that there are major questions about health care reform being passed due to the Mass. election. I liked CFN and their potential to grow earnings regardless of what does or does not pass.

Heavy earnings coming up the next couple of weeks. Everyone here know's I love Loews and am getting excited seeing it pull back. There was a nice piece written at another blog I found that you can read here. Ultimately it will come down to if Loews management can unlock the value. There is no doubt its there. Its a matter of if they need to spin off some assets, or buy something to call attention to themselves. At the end of the day, they're value investors though, and they won't sell assets at low prices. I'd say they will look to scoop up assets at a good price if they can find them. Beyond that, they will build up cash and buy back the stock if it remains this undervalued.

Something to think about over the weekend. I'll probably be buying at some point next week. Hopefully the Vikings can pull out the big win this weekend!!!

Thursday, January 21, 2010

The market seems fairly set on "selling the news" during the start of earnings season. We also had the major announcement of the restriction of various trading activities for the big banks. Something tells me the likes of Goldman and their friends will find ways around these rules.

Hopefully this sell off, which is largely in financial shares (which I don't care to own), gives us opportunities to pick up shares in companies we do like for a discount.

Etrade has been interesting for a speculative play. It is, however, no secret, and the stock has seemed to have a bid under it. I would like to pick up some shares as their operations are improving and a deal with another broker appears likely.

I also like Loews shares, which I've mentioned many times. I'm being patient here as stocks are falling, but these shares are undervalued. One of the problems with Loews is the market doesn't like to give them their due with regard to realizing their value, and it may take spinning off one of the companies, or a spike in energy prices, for this to happen. Meanwhile, Loews management seems content to buyback their own shares

There are a handful of other stocks I'm following as well. Although I haven't bought anything yet today, I'm definitely getting closer. I did buy some shares in ACAS last Friday around 3.89, and that trade has started off well.

On days like this, you have to give the market a little breathing room, and if you do buy, don't jump in too big. I'm still pretty bullish overall.

Wednesday, January 20, 2010

Just quickly going through after-the-bell earnings and spotted the result from business services (they handle credit card and bank transactions) company Total System Services. What jumped out at me was their 2010 outlook.

TSYS’ guidance for 2010 includes the impact of deconverted portfolios (whether as the result of bank failures, portfolio sales or otherwise), price compression, reduction in one-time termination fees and currency impact, and the current economic environment of the credit card market.

2010 Guidance

Total revenues $1,616 to $1,648 (4 %) to (2 %)

Reimbursable items $279 to $284 3 % to 5 %

Revenues before reimbursable items $1,337 to $1,364 (6 %) to (4 %)

Income from continuing operations $187 to $191 (15 %) to (13 %)

EPS from continuing operations $0.95 to $0.97 (15 %) to (14 %)

Average Shares Outstanding 197.7

“While 2010 is going to be a challenging year, we will continue to work aggressively to reduce our costs, including reducing staff, while expanding internationally and maintaining our technological advantage in the market place. We have an experienced and talented team at TSYS who will successfully execute our strategy to return growth to our business. In addition, with our strong balance sheet and cash flow, we will continue to aggressively pursue strategic acquisitions that diversify us and expand our presence in the payments processing business,” said Philip W. Tomlinson, chairman of the board and chief executive officer of TSYS.

I'll have to listen to the call to get a little clearer picture, but this is an industry that I was looking at quite favorably. The revenue estimates were only lower by 2 to 4%, but they are clearly a bit skeptical, and keep in mind we're looking at estimates compared to the abysmal 2009. I've always liked Fiserv as the best of breed in this industry, but its important to keep up with what competitors have going.

I'll monitor this situation some more, and definitely pay attention when FISV reports. If I remember right, TSS was having problems a couple of quarters ago when others were a bit stronger.

Tuesday, January 19, 2010

I've been scouring the market universe looking for undervalued stocks. Unloved sectors, turnaround situations, companies re-capitalizing, re-negotiating with lenders. One of the key factors when looking for value is find stocks that have been discarded by the market, and polish them off and see if any value is there. Benjamin Graham often referred to these as "Cigar Butts."

I find the for-profit education industry a bit intriguing here. This industry was hot the past few years. You had the perfect storm of adults looking to further their skills to stay competitive, and the convenience of night, weekend, or online classes. Then the recession hit and many people became unemployed. Boom! They're going back to school. Subsequently, these stocks got bought up. Apollo (the University of Phoenix) was a big name, along with COCO, ESI, DV, STRA, CPLA.

Last fall, some studies were released that showed default rates on loans being higher in for-profit universities than state or community colleges. These stocks have since been tossed aside. Actually, STRA and CPLA are still up near highs, but the others have sold off. Do I think the defaults on loans are an issue? Yes. Do I think they will be enough to derail this industry? Probably not. So you still have all the previous positive factors in place, and earnings growth is still expected. But the risk of loan defaults has pushed these stocks to fairly cheap levels, and they are sitting with big short positions. So, a solid earnings announcement with an outlook that still shows good enrollment rates and no red flags about loan defaults could cause a nice rise in these stocks. The short squeeze would only be pouring fuel onto the fire.

The bottom line here, as it is with many value plays, is the risk/reward appears tilted in our favor for a little while. I wouldn't own some of these stocks if they become expensive, but at these levels, they may be worth a look.

I'm going to do some more digging, and will post anything relevant, as well as any related purchases.

Kraft’s ‘Wiggle Room’ to Win Cadbury Must Be in Cash - I like this stock, but I have no way to forecast what might happen with this deal. Ackman entering the fray obviously made it more appealing. But like Buffett said, why issue all this stock when you were buying it back over the past year. Its not like it is overvalued. I still may have to dip a toe in on this one.

Vikings Roll Cowboys. Not exactly market related, but I just couldn't help myself. One of the best games ever for a Viking fan. I've been a Vikes fan since I was old enough to watch football. Just enjoying these games, and maybe we'll have a shot to win it this year.

Saturday, January 16, 2010

I wanted to take a few mintues to talk about brokerages. Everybody's using at least one, and many people use what are termed "discount brokerages." I'm talking about brokerages where trading is done primarily online, without broker assistance, and trades are usually less than $15.

I currently use two brokerages for my three accounts. I have a cash account with Scottrade, an IRA with Scottrade, and a cash trading account with Think or Swim. I have used Schwab in a limited basis, but these two I have the most familiarity with.

Scottrade is an excellent brokerage for someone looking for a straightforward, easy to use system. They have good customer service (I always get email responses within about 15 min), and they are cheap. Trades are $7. There is no fees on my IRA, which I appreciate. They are a little light on features, especially details about your cash, positions, etc. They do not offer dividend re-investment on stock positions. Another issue is idle cash. This doesn't come into play too much currently because rates are so low, but in more "normal" times, this is an issue. Schwab allows you to sweep money directly into a money market mutual fund, and I believe Etrade does as well. They can do this because they are banks and offer these funds. With Scottrade, you don't have that feature. You can buy into these funds, like Fidelity Cash Reserves, or Schwab's fund, but you have to pay for the mutual fund trade. For some reason, mutual fund trades are realatively expensive at Scottrade (they are $17), so $17 in, $17 out just to move your money around. Overall, I'd recommend Scottrade to beginners or anyone looking to just trade. This works fine for me because I'm constantly monitoring the market and market-related sites, so I get my research and information elsewhere, and use Scottrade strictly to trade.

Think or Swim is truly an innovative product. I haven't used all the brokerages out there, but I can guarantee you Think or Swim is doing things that no other brokerage does. There software has so many features, I couldn't begin to use all of them. They have a software program that you download and log directly into. You can also use web-based trading, and there is a nice application for your iphone as well. Think or Swim is made for option traders, but it can handle so much more. I'm a stock trader for the most part, but love the features they have for stocks, options, forex, etc. Its all there. You can pay commissions on a flat-fee basis ($9.95) or a per-share basis ($.015/share with a $5 minimum). At Think or Swim, I end up paying $5 per trade for stocks. Pretty dang good. As for idle cash, you can move it into one of the big funds like I mentioned before, but Think or Swim has 3 free mutual fund trades per month, so you're set there. The have other interesting features like live CNBC TV feed (even though I'm not a big fan of CNBC, I wish they'd have Bloomberg too). They also have a live feed of someone they call the "Shadow Trader" which is this guy that follows the market and executes trades and broadcasts everything. You can trade right along with him. They also have live webcasts and tutorials. Also, on their website, they have a big area that educates you about options trading. All free. I could go on and on about this brokerage.

In closing, both brokerages I use serve a good purpose for me. I'd be interested to hear what other people use and what they think about theirs. Please comment if you feel like it. Also, if you're thinking about switching brokerages or want more info about either of these, feel free to email me as well.

If you'd like to open an account with one of these, please let me know. They have refer-a-friend programs.

Friday, January 15, 2010

So Intel beats, and guides higher. No surprise here, as analysts continue to play ball. But the reaction was a bit unexpected. I was thinking this was a situation where we traded higher on good news or bad news, and traded lower only on bad news. This has been the case lately. But, the market loves to make people look foolish, and if you think you've got it figured out, you usually don't. JP Morgan also reported a big profit number today, even though Dimon expressed caution.

We got a fairly ho-hum sell-off. No panic out there. Lots of interesting stuff though. I did buy a small position into American Capital (ACAS), following a few good value traders out there.

There is a ton of value out there at Loews (L). I was doing some quick math on their holdings and you can buy the stock and basically get their private businesses like Loews Hotels for free. I'll be writing more about it as a buy shares.

I've got a lot of stocks I'd like to buy, but am seeing how this plays out. If we get more "sell the news" reaction to earnings regardless the outcome, I can't say I'd be unhappy.

We've got a couple of really interesting weeks coming up, and I will be posting a lot more as I'll likely be glued to the monitor.

Thursday, January 14, 2010

The market has been extremely quiet the past few days. Volume and volatility have been low as investors are waiting for the next catalyst. Never fear, however, as earnings season has arrived. Alcoa disappointed, but the market shook that off easily. Now, we're looking to Intel after the close today, and JPMorgan tomorrow morning. In the past two cycles, Intel in particular was of high importance. So, we wait.

Health care stocks, and particularly big pharma, has been rocking. Portfolio holding Pfizer has gained about 5% this week, and its one of the few mega-cap names I really like right now.

Sticking with health care, I also really like Carefusion (CFN), and almost added to my position a few times this week. There will be some good opportunities to add soon (I'm hoping).

I still would love to establish a large position in Loews (L). They have an awesome management team and a great group of businesses. They provide us exposure to a lot of industries I like at the present (offshore drilling, natural gas, luxury hotels, to name a few). The stock is still trading below book value. They figure to earn $4.00/share this year. At a 15x multiple, that puts them at $60. You can buy shares today for $37.90.

The market could get moving again following Intel's report. To be honest, I'd love to see a bit of a pullback. I do feel the recovery will be slow, but we're still burning the stimulus fuel, and until there is a better alternative than stocks and we don't see any shocks to the system, things should be good.

Friday, January 8, 2010

The market was pretty quiet this week. The jobs report came in below expectations, and the market pretty much brushed it aside. There are plenty of risks out there, but investors are becoming a bit complacent and the risk has shifted. Earlier this year, there was the risk of collapse and the risk of being in equities. As the market snapped back, there was the risk of being out of equities. Now, there is still some risk in being out of equities as there is just no good alternative, but many equities are fairly valued or overvalued based on where the economy is at. That is why I continue to preach picking stocks and searching for value, and not "buying the market." There are plenty of opportunities if you're willing to do your homework (or read the right websites!). I'm doing my best to balance into a group of stocks that are undervalued, while still protecting against a market correction that ultimately will come.

Earnings are the next catalyst for this market, and they could cause a good-sized breakout to the upside. Analysts are still on the conservative side with estimates, and companies that have been positioning themselves well in the past quarter will likely blow through estimates. This we have to be ready for.

We'll hit it hard again Monday. Until then, enjoy the weekend. Should be some good football!

Interesting headline out today showing this massive drop in consumer credit during November. Here's the story (via Bloomberg):

Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.

The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The series of 10 straight declines was the longest since record-keeping began in 1943.

A labor market that’s shed 7.2 million jobs since the recession started in December 2007 is restraining consumer spending that accounts for about 70 percent of the economy. Fed policy makers have said tighter bank lending standards and reductions in credit lines are hampering the recovery.

“Double-digit unemployment is eroding consumer confidence and the uncertainty is prompting consumers to pay down their credit card debts,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We have not seen such a wholesale reduction in consumer credit since the last time we had double-digit unemployment rate following the early ‘80s recessions.”

Stocks were mixed and Treasury two-year notes gained the most in three weeks after the Labor Department said earlier that companies reduced payrolls in December by 85,000 workers after adding 4,000 a month earlier. The unemployment rate held at 10 percent last month.

With an economy so dependent on the health of the consumer, figures like this are a little disturbing. Consumers are obviously still de-leveraging, and savings rates are growing. Meanwhile corporations still aren't hiring at increased levels (as evidenced by today's report). This will all factor into just how robust the recovery is, and how soon it will come. There has been evidence of strength returning, but the consumer is still in rough shape. It's also important not to get too wrapped up in stories like this as the market still appears to have momentum.

Thursday, January 7, 2010

The market has been pretty boring. We've been in the pattern of hovering near unchanged most days, with the occassional move of 1%. Everytime it appears the market is headed for a lower open, prices are scooped right up and we move higher. Fund My Mutual Fund had an interesting piece showing more evidence that the government is manipulating the market. This wouldn't be a big shock considering what else we've seen. At the end of the day, we're just looking for stocks at good prices, so we can't spend too much time worrying about things like this.

Lots of stocks I like out there right now. I've said this a million times before but I'd love to see just a little pull back to give me some comfort about moving into larger positions. My pattern lately has been to buy a small position so I'm at least in, but am waiting before getting in heavier.

Some stocks I like here are: CFN,CODI,TIII,CNI, L, EFTC, OESX, MOT. There are others that I own and may add as well like PFE and ABB. As always, I'll post transactions.

About My Blog

Welcome to "In the Know." Here I discuss trends in the market, and how I think investors can profit from them. I'll discuss specific stocks, sectors, and economic/political trends.

I'm a student of the markets and am constantly looking for new ways to gain an edge, but for the most part, I'm a value guy. I think you have to be flexible to be a successful investor, but discipline is by far the most important factor.

Disclaimer: The views expressed on this site are purely opinions of the author and should not be taken as investment advice. The author is not a registered financial advisor, and provides only his own commentary. The author disclaims all liability in any investment purchases made based on information gathered at this site, or through any link provided by this site. Readers should be aware that investments are subject to loss in value, and the author recommends consulting an investment professional before taking any action.